Banking

DOJ Close to Settlement With BNP Paribas

Benjamin Lawsky, superintendent of the New York State Department of Financial Services, stands for a photograph in New York on Oct. 19, 2011

Finally, after weeks of leaks and posturing and what seemed like a crisis that could have jeopardized Americans’ access to Port Salut, the French bank BNP Paribas and the U.S. government are close to settling the criminal investigation of the bank, the Wall Street Journalreports. The price tag is estimated to be between $8 billion and $9 billion.

According to U.S. prosecutors, the bank conducted at least $30 billion of illegal transactions on behalf of companies and government agencies in Sudan over a period of five years, violating U.S. sanctions. In addition to paying a record fine, the bank is expected to plead guilty to conspiring to violate the International Emergency Economic Powers Act and agree to a temporary prohibition on its ability to conduct transactions in U.S. dollars. In an unusual twist, more than 30 BNP employees are expected to leave the bank, a stipulation requested by Benjamin Lawsky, the head of the New York Department of Financial Services, the top bank regulator in the state. The multiyear investigation has been conducted by the FBI in New York, along with prosecutors from Preet Bharara’s U.S. Attorney’s Office in Manhattan, the Manhattan District Attorney, and the U.S. Department of Justice’s criminal division in Washington.

Bloomberg News reported on June 5 that although the fine seems huge compared with those paid by other banks in comparable cases, prosecutors feel that it’s justified because of the severity of the misconduct as well as the fact that BNP didn’t cooperate as fully as the government would have liked. At the same time, although it will likely break records and make headlines, the settlement is unlikely to satisfy many of the Justice Department’s critics, who feel that the way it has pursued criminal cases against large financial institutions, by leveling huge fines against the companies rather than charging individual bankers, has been ineffective. It’s as if prosecutors and regulators keep stabbing at big banks, searching for a viable vein from which to extract some blood. No matter how deeply they insert the needle, nothing comes out.

The lack of cases against actual people, and the special dispensations the government has offered banks such as Credit Suisse, which settled its own criminal case over tax evasion a few weeks ago and then went on as if nothing had happened, has sucked much of the impact out of big settlements.

In the end, bank shareholders end up bearing much of the cost. “I would prefer to see the government focus on individuals. I would prefer to see the government find out whether any particular individual committed a crime, and then go after that particular individual when they have the evidence,” Reed Brodsky, a former white-collar prosecutor in the Manhattan U.S. Attorney’s Office and now a partner at Gibson Dunn, said on Bloomberg TV last week. “Rather than focus on the particular company, which is essentially owned by shareholders.”